Irish Government approves sale of Aer Lingus to IAG – What we know

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Aer Lingus Airbus A320
Aer Lingus Airbus A320 (By BriYYZ via Wikimedia Commons)

The Irish Government has today announced its support for International Airlines Group’s bid for Aer Lingus.

Full details of the bid can be viewed in the offer document. A more easily digestable summary of IAG’s bid for Aer Lingus can be viewed in this IAG presentation.

The deal is also far from done yet as Ryanair (which holds 30% of the shares in Aer Lingus) has yet to show its hand. The transaction will also be subject to regulatory approval.

Here’s a summary of what we know (and don’t know) so far

1. What we know

a) Aer Lingus will retain its own brand and have its own management in Dublin.

b) Aer Lingus will rejoin the Oneworld alliance.

c) Aer Lingus will join the transatlantic joint-venture between American Airlines, British Airways, Finnair and Iberia. This will mean full codesharing and joint scheduling and marketing of transatlantic routes.

d) IAG will expand the Aer Lingus transatlantic network adding up to four new transatlantic destinations with two due to launch in summer 2016. IAG has not given any indication what these may be but safe bets are Miami, Los Angeles and Dallas Fort Worth (these are all hubs of American Airlines). This will complement existing services to cities such as New York, Boston, Chicago, San Francisco and Washington.

e) Aer Lingus’ 23 slot pairs at London Heathrow (which represent just over 3% of the airport’s slots), cannot be sold, including to other IAG airlines. Aer Lingus will maintain its existing frequencies to Dublin (up to 13 daily), Cork (4 daily) and Shannon (3 daily) for a period of seven years. Aer Lingus will take IAG’s share of slots at London Heathrow to over 50%.

f) Aer Lingus will maintain a presence at London Heathrow Terminal 2, making it the only Oneworld member airline in a terminal largely occupied by Star Alliance airlines.

f) Aer Lingus will benefit from additional co-operation with IAG airlines, beyond joining Oneworld and the transatlantic joint-venture. This could include, for example, co-location in part with BA at London Heathrow Terminal 3 or 5 and co-operation and codesharing with Iberia and Vueling.

g) The Aer Lingus “Gold Cirle” frequent flyer programme will adopt the IAG “Avios” currency which means that members will be able to move Avios between different IAG frequent flyer programmes.

2. What we also expect to happen

a) We expect Aer Lingus will codeshare on BA’s long-haul routes to Africa, the Middle East and Asia Pacific and Iberia’s long-haul routes to Latin America.

b) IAG may be required to forfeit slots to a willing entrant on the London Heathrow – Dublin route to satisfy competition authorities. However, based on the experience of Virgin Atlantic Little Red, we think it is unlikely these slots will be taken up.

3. What we don’t know

a) Aer Lingus currently has codeshare relationships with JetBlue, Etihad Airways, United Airlines, Virgin Atlantic and KLM. It is a reasonable assumption that many of these may be discontinued.

b) We don’t know whether other Oneworld airlines will increase flights to Dublin. American Airlines currently flies to Dublin from Philadelphia and New York JFK (year round) and Chicago and Charlotte (summer seasonal).

c) Little has been said about Aer Lingus’ presence at London Gatwick, other than that the existing service to Knock will be maintained.

d) We don’t know whether there will be a consolidation of the Aer Lingus and British Airways schedules on overlapping routes to Belfast and Dublin. There is precedent from the merger between BA and Iberia for a route to be shared between the airlines with scheduling timed to maximise efficiency by eliminating “night stops” where aircraft and crews stay away from their home base overnight (thus reducing aircraft utilisation). This is the case for London Heathrow – Madrid.

4. Finally….

Over the past 15 years, BA has been steadily reduced its presence in a number of UK cities. It has withdrawn entirely from cities such as Bristol, Birmingham, Newquay and Southampton. Furthermore, the only city BA serves from non-London cities is London itself. This has earned BA the moniker “London Airways”.

Only in the past few years has the airline has added Leeds Bradford and Belfast to its network following the purchase of bmi.

IAG, will through Aer Lingus, gain or regain a presence in cities such as Birmingham, Bristol, Doncaster/Sheffield, and Newquay and East Midlands Airport where there is currently no IAG presence. We expect IAG to use Aer Lingus to regain a significant presence for IAG in the UK regional network.

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